# Petro Mex, LLC v. United States > United States Court of Federal Claims · February 20, 2023 URL: https://www.frixlaw.com/law-library/cases/9372296 ## Case - **Court:** United States Court of Federal Claims - **Decided:** February 20, 2023 - **Precedential status:** Published - **Opinion:** Opinion - **Cited by:** 0 later opinions in the Frix Law Library ## Citator (automated) - No negative treatment found by the automated citator. That is not the same as a confirmation that the case is good law; read the citing cases. - Full citator and citing cases: https://www.frixlaw.com/law-library/cases/9372296 ## How later opinions describe it (automated extraction) - explaining that “[a]rguments raised for the first time in a reply brief are not properly before this court” and that “[i]t is unfair to consider an argument to which the government has been given no opportunity to respond” ## Opinion text In the United States Court of Federal Claims No. 14-1024C Filed: February 20, 2023 * * * * * * * * * * * * * * * PETRO MEX, LLC, * * Plaintiff, * v. * * UNITED STATES, * * Defendant. * * * * * * * * * * * * * * * * * Douglas J. Reynolds, The Reynolds Law Group, Durango, CO. With him was Michelle Der Ohanesian, The Reynolds Law Group, Durango, CO. Kara M. Westercamp, Trial Attorney, Commercial Litigation Branch, Civil Division, United States Department of Justice, Washington, DC, for defendant. With her were Allison Kidd-Miller, Trial Attorney, Commercial Litigation Branch, Tara K. Hogan, Assistant Director, Commercial Litigation Branch; Patricia M. McCarthy, Director, Commercial Litigation Branch, and Brian M. Boynton, Principal Deputy Attorney General, Civil Division. Philip C. Lowe, Solicitor’s Office, United States Department of the Interior, Lakewood, CO, of counsel. OPINION HORN, J. In the above-captioned case, plaintiff Petro Mex, LLC (Petro Mex) filed its complaint in the United States Court of Federal Claims alleging that defendant breached its lease agreement for oil and gas mining. Plaintiff seeks more than $5,000,000.00 in damages, including expectations damages, reliance damages, interest and fees. Specifically, plaintiff “seeks damages for the approximately two-year period in which it was prevented from producing and selling oil and gas and for damage to the wells on the Lease that were caused by the extended shut-in period.” The above captioned case was originally assigned to Judge Nancy B. Firestone. The above captioned case was subsequently reassigned to Judge Robert H. Hodges, before ultimately being reassigned to the undersigned. The undersigned held a trial on plaintiff’s breach of contract claims and defendant’s offset claims. FINDINGS OF FACT The Garfield Lease The parties have stipulated that “[e]ffective March 1, 1965, Celeste C. Grynberg and the DOI [United States Department of Interior] entered into oil and gas lease number COC-0124705A (Garfield Lease) on public land,” and “[t]hrough a series of assignments, Petro Mex acquired record title to the Garfield Lease effective October 1, 2004. At all times relevant to this case, Petro Mex was the owner and the operator of the Garfield Lease.”1 (alterations in original). Additionally, the parties stipulated that “[a]t all times relevant to this case, Jesus Villalobos was the owner and president of Petro Mex.” Mr. Villalobos testified at trial that he is the sole owner of Petro Mex. Mr. Villalobos explained that he founded Petro Mex [b]ecause I get a chance to come into the -- since I’ve been in the oilfield business all my life -- I used to have a friend that -- his name was John Durham and he come over and talk to me to buy oil wells in Colorado. Well, he’s trying to buy those wells, but he said he can’t come up with the money. So he asked me if I can buy them. So that’s when I started Petro Mex. (alteration added). The Garfield Lease began with a series of “Lease Terms.” Section 1 of the Garfield Lease states: 1 As noted by defendant, although there were also “references to Lease COC-088586 (Mesa Lease) and Lease COC-60770 (Esmerelda [sic] Lease) throughout the trial, the Garfield Lease is the only lease at issue.” (alteration added). Plaintiff’s counsel stated at the trial that the Mesa Lease “is not at issue in this matter for ownership reasons.” Plaintiff did not contest defendant’s statement that the Esmeralda Lease is not at issue in this case. The court notes that the Esmeralda Lease was referenced in a June 16, 2009 letter to Petro Mex, discussed below. The June 16, 2009 letter stated, in part: Lease COC-60770 The status of COC-60770 has been difficult to track for the past several years. The Esmeralda 1-2 was spud on July 4, 2007 and a lease extension was earned by drilling over the lease expiration date. As of today the well has not been completed. In addition, the location for the Esmeralda 2-2 has been built and Petro Mex will be responsible for restoration. The APD [Application for Permit to Drill] for the 2-2 well has expired. We have consulted with the Minerals Management Service and our State Office and have determined that the subject lease terminated due to failure to pay the lease yearly rental. Find attached a notice of the lease termination (Enclosure 6). (emphasis in original; alteration added). 2 SECTION 1. Rights of Lessee. — The lessee is granted the exclusive right and privilege to drill for, mine, extract, remove, and dispose of all the oil and gas deposits, except helium gas, in the lands leased, together with the right to construct and maintain thereupon, all works, buildings, plants, waterways, roads, telegraph or telephone lines, pipelines, reservoirs, tanks, pumping stations, or other structures necessary to the full enjoyment thereof, for a period of 10 years, and so long thereafter as oil or gas is produced in paying quantities; subject to any unit agreement heretofore or hereafter approved by the Secretary of the Interior, the provisions of said agreement to govern the lands subject thereto where inconsistent with the terms of the lease. (capitalization and emphasis in original). Section 2(g) of the Garfield Lease provides: “Statements, plats and reports.— At such times and in such forms that the lessor may prescribe, to furnish detailed statements showing the amounts and quality of all products removed and sold from the lease, the proceeds therefrom and the amount used for production purposes or unavoidably lost[.]” (alteration added; emphasis in original).2 Section 7 of the Garfield Lease provides: SEC. 7. Proceedings in case of default. — If the lessee shall not comply with any of the provisions of the act or the regulations thereunder or of the lease, or make default in the performance or observance of any of the terms hereof (except that of payment of annual rental which results in the automatic termination of the lease), and such default shall continue for a period of 30 days after service of written notice thereof by the lessor, this lease may be cancelled by the Secretary of the Interior in accordance with section 31 of the act, except that if this lease covers lands known to contain 2 Pursuant to the operative version of 43 C.F.R. § 3162.4-1(a) (2007) during the period at issue in this litigation, an operator “shall keep accurate and complete records with respect to all lease operations including, but not limited to, production facilities and equipment, drilling, producing, redrilling, deepening, repairing, plugging back, and abandonment operations, and other matters pertaining to operations.” Id. The current version provides: (a) The operator must keep accurate and complete records with respect to: (1) All lease operations, including, but not limited to, drilling, producing, redrilling, repairing, plugging back, and abandonment operations; (2) Production facilities and equipment (including schematic diagrams as required by applicable orders and notices); and (3) Determining and verifying the quantity, quality, and disposition of production from or allocable to Federal or Indian leases (including source records). 43 C.F.R. § 3162.4-1(a) (2022). 3 valuable deposits of oil or gas, the lease may be cancelled only by judicial proceedings in the manner provided in section 31 of the act, but this provision shall not be construed to prevent the exercise by the lessor of any legal or equitable remedy which the lessor might otherwise have. Upon cancellation of this lease, any casing material, or equipment determined by the lessor to be necessary for use in plugging or preserving any well drilled on the leased land shall become the property of the lessor. A waiver of any particular cause of forfeiture shall not prevent the cancellation and forfeiture of this lease for any other cause of forfeiture, or for the same cause occurring at any other time. (capitalization and emphasis in original). After the “Lease Terms,” the Garfield Lease included an “OFFER TO LEASE AND LEASE FOR OIL AND GAS,” (capitalization in original), from the Department of the Interior (DOI), Bureau of Land Management (BLM), which stated: The undersigned hereby offers to lease all or any of the lands described in item 2 [meets and bounds description] that are available for lease, pursuant and subject to the terms and provisions of the Act of February 25, 1920 (41 Stat. 437, 30 U.S.C. sec. 181),[3] as amended, hereinafter referred to as the act, and to all reasonable regulations of the Secretary of the Interior now or hereafter in force, when not inconsistent with any express and specific provisions herein, which are made a part hereof. (alterations added). The parties stipulated that “[a]t all times relevant to this case, there have been three operational natural gas wells on the Garfield Lease: Federal 15-9; 6-9-8-101; and Government 5.”4 The parties further stipulated that “[t]he ‘minimum royalty’ for the Garfield 3 As noted in defendant’s post-trial brief: The Mineral Leasing Act of 1920, ch. 65, 41 Stat. 437 (1920) (codified, as amended, at 30 U.S.C. § 181 et seq.) (1981), authorizes and governs the leasing of public lands, i.e., lands “owned by the United States,” for developing deposits of certain minerals, including oil and gas. As the principal administrator of the Mineral Leasing Act for onshore minerals owned by the United States, Interior issues oil and gas leases authorizing mineral exploration and development activities by private entities. 4The court notes that at trial, the parties and the witnesses did not refer to the names or number of the wells operated by Petro Mex with consistency. By way of example, Linn Wilson, a Petro Mex employee, had the following exchange with plaintiff’s counsel at trial: Q. How many wells are on that lease? 4 lease was $1,080. The ‘royalty on production’ for the Garfield lease was 12.5 percent on production removed or sold from the leased land.” The royalties were to be paid to the lessor, the BLM. In an exchange with plaintiff’s counsel, Mr. Villalobos testified at trial regarding the operations of Petro Mex and its wells: [Question by plaintiff’s counsel of record Douglas Reynolds] What is it that Petro Mex does? What is the business that Petro Mex is in? [Answer by Mr. Villalobos] Petro Mex owns leases in Colorado and now we own leases in New Mexico and Utah right now. Q. Okay. And you’re saying they own leases. You’re referring to oil and gas leases, right? A. That’s correct, yes, sir. Q. And does Petro Mex operate those leases as well? A. Yes, sir. Q. Okay. And you were here for the testimony yesterday or at least you observed the testimony from Mr. Wilson, Linn Wilson, yesterday, correct? A. Yes. Q. And are you familiar with the lease that we were discussing, the Garfield lease? A. Yes, sir. Q. Okay. When did Petro Mex purchase that lease? A. There is [sic] four wells on that lease. Q. And what are those wells called? What are the names -- A. There is the 15-9, the 6-9, the Government 6, and the Government 5. (alteration added). During Mr. Villalobos’ direct testimony in response to the question: “You said that the lease -- the wells that were in place were the 15-9, the 6 and the 2. Yesterday, we also heard discussion of a Government 5 well,” Mr. Villalobos confirmed: “Yes, sir.” To add further confusion, in a April 1, 2009 letter to Petro Mex from the BLM, discussed below, the BLM indicated: “There are five wells on the lease and all are operated by Petro Mex, LLC,” “Federal 15-9 Government 9 Government 5 Government 6 Federal 6-9.” 5 A. 2003. 2002 or 2003. Q. Okay. Well, you said that Petro Mex was formed in 2002 or 2003. Did Petro Mex buy that lease essentially right after it was formed? A. Yes. That’s the reason I formed Petro Mex. Q. Was to buy that lease? A. Yes, sir. Q. And there’s another lease as well, right? A. Yes, sir. Q. In Colorado? A. Garfield County and Mesa County. Q. Okay. So there’s another lease that Petro Mex owned or operated and that’s called the Mesa lease. Is that correct? A. Yes, sir. Q. Was there a third lease at that point in time as well? A. Yeah, we had another lease in Section 2. Q. Okay. A. That was terminated. Q. Okay. When you purchased the Garfield lease, was there a well already in place on the lease? A. Yeah, that was [sic] three wells in place already, yes. Q. Okay. Which wells were in place? A. The 15-9, the number 6 and then number 2. Q. Okay. And were those wells productive when the lease was purchased? A. The [sic] was making some gas, yes. 6 Q. Okay. Were they making enough gas to cover royalties and expenses? A. Yes, but I had to lay 15 miles of pipeline to be able to produce more. ... Q. Okay. You said that the lease -- the wells that were in place were the 15- 9, the 6 and the 2. Yesterday, we also heard discussion of a Government 5 well. A. Yes, sir. Q. Was that a well you drilled after you purchased the lease? A. Already -- that well was already drilled. It wasn’t hooked up. So I have to do -- redrill it and hook it up to the other system. Q. Okay. Do those wells produce oil as well, Mr. Villalobos? A. The only one that produce oil is the 15-9. Q. Okay. And does it produce very much oil? A. Not very much. Q. It’s primarily a natural gas oil well? A. Most -- gas, yes. Q. Okay. What employee handled most of the day-to-day operations of the wells back in 2007 and 2008? A. Mr. Linn Wilson. Q. Okay. Did you do much on a day-to-day basis with regard to those wells? A. I was doing some of it. I do -- I was doing some work, and I didn’t do that much paperwork because I don’t know how to do it. (alterations added). Mr. Wilson, the Operations Manager of Petro Mex, testified at trial that after 2005, the Garfield Lease was consistently productive. Well Inspection and Notices of Incidents of Noncompliance The parties agree that the “lease at issue in this matter was, at all times relevant to this case, subject to the jurisdiction of BLM’s Grand Junction (Colorado) Field Office 7 (Field Office).” (capitalization in original). As noted by defendant: “Because all gas produced from a Federal lease is subject to royalty payments, 30 C.F.R. §§ 1202.150(a), (b)(1), operators must submit production reports in order to verify and calculate the royalty payments due to the United States. 30 C.F.R. § 1210.101(a).” (internal reference omitted). Related to the required reports for the Garfield Lease, a BLM employee Mr. Robert Hartman, a petroleum engineer in the Field Office with the BLM, sent Petro Mex a letter on March 14, 2007, which stated, in part: Please refer to our letter dated August 11, 2006 that requested information concerning wells operated by Petro-Mex. To date, none of the information requested has been received. Petro-mex’s [sic] failure to provide this information is an Incident of Non Compliance. The following is an order of the authorized officer. In accordance with 43 CFR 3163.1(a), please submit the above indicated reports to this office no later than twenty (20) days from the receipt of this letter to correct the violations. If you fail to submit the required reports in the time specified, you will be liable for an assessment of $250.00 under 43 CFR 3163.1(a)(2). For clarity we repeat our request for information in the following bolded italicized text. We are lacking several reports for wells operated by Petro-Mex Resources. The listed items cover different wells and areas of concern. Lease COC088586, Well 1-15-8-101, NW¼, NW¼ Section 15, T8S, R101W Lease COC0124705A, Well 6-9-8-101, SE¼ SW¼, Section 9, T8S, R101W Form 3160-5, Spud Notification: two copies due of written confirmation of verbal spud notification. We have no record of the spudding of these wells. Form 3160-4, Well Completion Report and Log: two copies due within 30 days after well is completed (Onshore Order No. 1, Section VIII). Geologic Logs: two copies due within 30 days after well is completed. (43 CFR 3162.4-1b requires duplicate copies of all types of wire line logs, sample logs, drilling time logs and other well surveys). Lease COC0124705A, Well 5, SW¼ SW¼, Section 9, T8S, R101W First Production Notification: Notification to the BLM is required within 5 days of first production. The COGCC website indicates the subject 8 well began producing in January 2006 after being shut in for several years. Form 3160-4, Well Completion Report and Log: two copies due within 30 days after well is completed (Onshore Order No. 1, Section VIII). Please update status of recompletion as requested in your sundry of August 2004 which involved pulling the existing casing and running new strings. Lease COC088586, Well 2, NW ¼ NW ¼, Section 15, T8S, R101W First Production Notification: Notification to the BLM is required within 5 days of first production. The COGCC website indicates the subject well began producing in July 2004 after being shut in for several years. The Minerals Management Service is responsible for the collection of production reports for all federal leases and agreements. Their database shows that Petro-Mex has not reported for several years. Please indicate in your response to this letter [sic] status in updating the production reporting for all of the wells listed in Attachment 1. (emphasis in original; alterations added). At the trial, defendant’s counsel and Mr. Hartman had the following exchange about the March 14, 2007 letter at trial. [Question by defendant’s counsel of record Kara Westercamp] [B]eneath the first production notification, there is a reference to a Form 3160-4, Well Completion Report and Log. Why were you asking for that? [Answer by Mr. Hartman] I believe we did not have any record of that well being completed. Again, I’m not sure if Petro Mex was the -- drilled the well or not, but we didn’t have a copy of it, so I was just asking for that. And that’s due within 30 days of the well being completed. Q. And considering that there’s a reference to a sundry of August 2004, and now we know we’re at least past August 2006, was that something that Petro Mex should have provided? A. Yes. (alterations added). Regarding the reference in the March 14, 2007 letter to the Minerals Management Service, defendant’s counsel asked Mr. Hartman just going to the last paragraph, a reference to MMS [Minerals Management Service], and it looks like you state that their [Minerals Management Service] 9 database shows that Petro Mex has not reported for several years. Why -- why were you asking about -- about the MMS database? A. Well, we were sort of shooting blind. We didn’t know for sure what was going on. We didn’t have any production reports from Petro Mex, so we were asking for them to update the MMS so that we would know more. (alterations added). Previous to the March 14, 2007 letter sent by Mr. Hartman, on November 30, 2006, Edward Fancher, a petroleum engineering technician with the BLM, sent a letter to Petro Mex indicating that Petro Mex’s “leases and wells have been selected by the Grand Junction Field Office (GJFO) for a production inspection.” The testimony developed at trial demonstrated that Mr. Fancher was the BLM employee who had the most direct contact with Petro Mex and visited the site most often during the time period at issue in this above captioned case. The November 30, 2006 letter from Mr. Fancher continued: In accordance with 43 CFR 3162.7-5(b)(6), you shall submit the following documents to the GJFO by January 15, 2007: 1. (a) OGOR [Oil and Gas Operations Report] reports submitted to MMS [Minerals Management Service5] for each well during the inspection times. (b) Gas purchase statements, Quarterly Meter Calibration Reports, Configuration Report, and Chart Integration Volume Statements (Daily Chart Integration Audit Reports) for each well. (c) Gas Chromatography Analysis showing BTU content and Specific Gravity. (d) Methods used to estimate volumes of gas Flared, Vented, or otherwise Lost. (d)[sic] Methods used to estimate volumes of gas Used on Lease; list equipment on the lease that uses gas, by well location. (e) Manufacturer’s MCF use rating of production equipment. 2. (a) Fluid Transporter 5 Defendant notes that “Interior reorganized the former MMS [Minerals Management Service] in 2011, and the section relevant to gas production and royalty payments is now called the Office of Natural Resources Revenue (ONRR).” (alteration added). 10 (b) Run tickets for oil sold, or water hauled for each facility. (c) Tank number(s), tank size(s) and tank strapping for each storage facilities. (d) Daily pumper’s reports for period showing produced water and gas. (h) [sic] Pipeline run statements for the period. (alterations added). The November 30, 2006 letter concluded: All documents shall be properly identified by federal case/lease and well number and include the information requested above. Failure to comply with these instructions may result in the issuance of a “Notice of Incident of Noncompliance”. You have the right to request a review of these instructions per 43 CFR 3165.3 and to appeal per 43 CFR 3165.4. Mr. Fancher testified that, at that time, “[m]y primary job duties was [sic] production accountability, which is production inspections, field inspections.” (alterations added). direct examination with defendant’s counsel, Mr. Fancher had the following exchange: [Q.] [W]hat is production accountability? A. That’s comparing the two databases against each other for accuracy. It also includes requesting documentation from the operator and comparing that data with what they say they’ve produced and what they actually reported that they produced. Q. And what is the purpose of a production accountability inspection? A. Just to ensure that everything that is harvested out of the -- the minerals and stuff that is harvested, that we have some kind of accurate way of tracking it. Q. And why is it important that you be able to track production? A. To make sure that it’s getting reported, of course, and then -- and then the royalty concern that comes out of that, and that’s taken care of by the ONRR [Office of Natural Resource Revenue] people. Q. Okay. And you mentioned you used two databases when you do the production accountability work. Could you tell us what those were, please? A. Yes. One is our OGOR [Oil and Gas Operations Report] statements, our oil and gas statements that we get from our AAFMS database, American Automated Fluid -- Automatic Fluid Measurement System. And then I look 11 at, like, Colorado, their oil and gas website, and I would compare those figures, what they reported there. They should be the same. If their [sic] not, then we may ask the operator to send me a copy of their -- their reporting to see where the difference is at. (alterations added). Additionally, defendant’s counsel asked Mr. Fancher about “site security:” [Q.] could you tell us what the -- what are some of the major areas that you are inspecting as part of site security? A. We’re concerned with any bypasses around any gas meters, and we’re also concerned about any sealing of oil tanks. So every tank has to have a -- a seal. If it’s dealing with oil, it needs to be properly sealed, and site security is how we would -- the activity we would be doing when we inspect those things. Q. Okay. And could you explain more about why you look for proper seals? Why is that important? A. Well, it affects the royalty income and the production accountability. If the seals aren’t in place properly, then the fluids -- the oil, water, whatever -- can be removed from the location without anybody ever knowing where it goes to, and we like to have an idea where all the production fluids go, water and oil. Q. Okay. And you said one of the other things that you inspect for during a site security inspection is any bypasses around gas meters. What could that -- if you found such a thing, what could that mean? A. That would mean that the -- the operator could be filtering off gas, taking the gas meter out of line and just totally going around it. So there would be no measurement of that gas, and if that’s the case, then that would affect royalty income. Q. Okay. In addition to -- are there any inspections that you do in addition to production accountability and site security inspections? A. Yes. We also do, like, meter calibrations and chart verifications, which they’re kind of similar in a way. If I’m doing a meter calibration, then I'm witnessing someone calibrate the gas meter to ensure that it’s accurate according to regulations, and if I’m doing a CV, is what we call the chart verification, then we are looking to see how well the operator’s or the mechanic’s electronics are doing as far as the accuracy of the meter. (alteration added). 12 Regarding the November 30, 2006 letter from Mr. Fancher to Petro Mex, defendant’s counsel asked Mr. Fancher, “why did you decide to request these particular documents [referenced above, including the OGOR reports, the Quarterly Meter Calibration reports, the Configuration reports gas purchase statements, the Daily Chart Integration Audit reports, and the gas purchase statements] from Petro Mex?” (alteration added) Mr. Fancher testified: Well, I wanted to verify their -- their reporting. So the OGOR statements, I wanted a copy of those. I wanted a copy of their gas purchase statements, calibration reports, and I look through all these to ensure that the meters are being calibrated when they’re supposed to be, the frequency they’re calibrated, that the reporting is really flawless, you know, we want to make sure they’re -- what they’re producing is what they’re reporting, and that would include, like to see the gas chromatography, we like to know that, too, for our calculations, and it’s not too often anybody flares or vents gas. We don’t really particularly care for that very much, but if they did, I wanted to verify all their records with that that I would get from MMS. (alteration added). On March 1, 2007, Mr. Fancher contacted Linn Wilson at Petro Mex about the November 30, 2006 letter and Mr. Fancher testified: I called him to find out the status of their audit that I requested for the 2007, and I -- I mentioned I gave an extension, but I still haven’t received anything. So they had -- and we talked about -- I mentioned that the material -- he said that the material was in Trudy [Grubilnick6]’s hands, that he’d call her, 6Mr. Wilson testified that Trudy Grubilnick was Petro Mex’s former bookkeeper. Plaintiff’s counsel and Mr. Wilson had the following exchange at trial regarding Ms. Grubilnick: [Q.] Is she [Ms. Grubilnick] still with Petro Mex? A. No. Q. Was she eventually terminated by Petro Mex? A. Yes, she was. Q. Do you remember when she was terminated? A. I believe it was in 2008, but I’m not --I can’t remember exactly when. Q. And do you know why she was terminated? Did you terminate her? A. No, I did not. Jesus did. 13 so kind of like basically saying he didn’t really know what happened. Trudy was supposed to take care of all that. (alteration added). Defendant’s counsel subsequently asked Mr. Fancher: “So as of 7/3/2007, had Petro Mex provided the information that you had requested for the fiscal year 2007 production accountability inspection?” to which Mr. Fancher testified: “No.” Mr. Fancher testified that he followed up with Petro Mex in July 2007 about the missing documents. In response to defendant’s counsel question at trial, “did Petro Mex provide any explanation for its failure to give you the information you had requested?” Mr. Fancher responded: “No.” Mr. Fancher also testified about his authority as an inspector. Defendant’s counsel and Mr. Fancher had the following exchange during his direct testimony: [Q.] [A]s a petroleum engineer, technician, and an inspector, do you have the authority to take enforcement actions against lessees and operators? A. Yes, I do. Q. Okay. I’d like to talk about the different enforcement actions that were available to you in 2007 to 2010. What was the lowest level of enforcement action that was possible for you to take if you found some problem during an inspection? Q. Okay. Do you know why she was terminated? A. Because she was not filing the records and the reports as she should have been, and the royalties was not getting paid. (alterations added). Mr. Villalobos, on his direct testimony, clarified with plaintiff’s counsel about the timeframe for Ms. Grubilnick’s employment with Petro Mex: [Q.] Do you remember when you hired her? A. Like 2007, 2006. Q. Okay. And when did you terminate her? A. I think that was at the end of 2007. Q. Okay. A. Or early 2008. Q. Okay. 14 A. Well, if I found just a problem, that’s something that’s not characterized as a violation of regulation, I would take a -- make a written order and have that signed at that time by the authorized officer, which would be like the building manager or whoever he designated, and I would pursue it that way. That would be my first step, would be that written order in that particular case. Q. Okay. Is that a -- does BLM call that an order of an authorized officer? A. Yes. Q. Okay. And as a petroleum engineer/technician, were you an authorized officer who could give such orders? A. Yes. I could -- I could -- now we can’t sign them for sure. Back then, I think they liked our -- our field office -- kind of a field office delegation for those at that time. Q. And could you give us an example of a situation when an order of the authorized officer would be appropriate? A. Say if there was a -- a lot of weeds, noxious weeds or something like that growing or some rilling[7] off of the pad which would cause erosion. That wold [sic] be a good reason to use a -- because it’s not really against the regs could have -- to have that natural erosion happening, but to have it corrected, we would have to use what -- some kind of instrument to communicate that to the operator, and written orders would be used first. Q. Okay. And earlier you drew a distinction between a problem and a violation. So if you find a violation -- what does a violation mean to you? A. A violation is something that’s specifically addressed in the on-shore orders or the 43 CFRs, and with that -- or a violation of a condition of approval or a violation of a written order, and I can issue a [sic] incident of noncompliance and giving a date and request them to repair their fix to make whatever change is necessary to be in compliance. Q. Okay. And I noticed you said “written order.” Are you using that interchangeably with “order of the authorized officer”? A. Yes, yes. It is an interchangeable thing. You might consider one might be a written form. I had a regular form in my database for written orders, and we could do, like, one of those forms, or you can do a -- a letter form. 7Although not defined by Mr. Fancher at the trial, “rilling” refers to rill erosion, which can occur if runoff water forms small channels as it concentrates down a slope. 15 (alterations added). Regarding different kinds of enforcement actions, Mr. Fancher explained to defendant’s counsel at trial: Q. If you found a violation on a lease, what was the lowest level of enforcement action available to you? A. I would write an incident of noncompliance. Q. Okay. Is there anything that is less serious than an incident of noncompliance? A. Yes, there is. There’s some things that, according to the reg, doesn’t -- doesn’t have enough weight to be a major -- it’s a minor violation -- they have two gravities, minor and major. A minor violation, the time to repair it - - so like a -- a sign wasn’t correct, then I would write an incident of noncompliance and have them correct their sign. Q. And just -- I just want to make sure this doesn’t get confused, but I'm asking about if there’s something lesser than an incident of noncompliance. A. Oh, I’m sorry. Q. And, if so, if you could tell us what that is, please. A. That would be like -- less than that would be the written order of the authorized officer. That would be -- yeah. Q. Okay. Are there any kind of verbal warnings? A. At that time, there was [sic] verbal warnings, but even a verbal warning had to be documented, and a copy of the documented verbal warning would have to be sent to the operator within 15 days. Q. Could you give us -- well, did you ever issue any verbal warnings? A. I have, yes. Q. Could you give us a sense of the situation where a verbal warning might be appropriate? A. If I was on location, say, where an operator was or a hand or somebody and, like, even the -- the sign, if I couldn’t read the sign correctly or a lease number had changed perhaps and it was incorrect, then I would request them to correct that sign, something they could possibly do immediately right there. 16 Q. Okay. And I believe you explained, but I want to make sure we’ve got it clear for the record, even though it’s called a verbal warning, was there still an element in writing? A. Oh, yes. Yes, everything had to be documented for the verbal warnings, too. Q. And now could you tell us about a minor incident of noncompliance? We’re going to talk in more detail about incidences of noncompliance, but could you just start out by telling generally what that is. A. We have a -- a set of standards and regs put forward through CFRs [Code of Federal Regulations] and the on-shore orders, and like I said, the conditions of approval, if something is violated because it’s written down, you know, and an incident of noncompliance would be the way to correct that. It would be like the sign issue, could be a tank number, safety signs, things like that. Q. And what does the word “minor” mean in this context? A. It means that it doesn’t quite have the gravity to be a major. So that would be, like, does it really pose an immediate threat or adverse condition to health and safety, for production accountability, for oil and gas safety, things like that. I don’t know all the jargon for that. ... [Q.] Could you describe for us, please, what a major incidence [sic] of noncompliance? A. A major incidence [sic] of noncompliance is something that would create an adverse immediate danger to health and safety, starting something without approval, something that would have an effect on really the health and safety, production accountability, royalties, and there’s a couple more. I don’t remember what they are. Q. After a major incident of noncompliance, what is the next level of enforcement action available to you? A. Then that would be an assessment. Q. What is an assessment? A. An assessment for a major would be a -- a $500 fine per day until the incident was corrected. It’s a little different than maybe a -- a minor, whereas 17 we -- if we need to make a reasonable effort to contact the producer, the operator, and in doing that, then, we would close the initial incident of noncompliance, issue the major incident of compliance with the assessment. That would be the ongoing document at that time. And then from there, then it would go obviously to civil penalties or. . . Q. Okay. And could you give us an example of -- well, let me ask, in what situations do you issue civil penalties? You’ve just described the escalation from INCs [Incidents of Noncompliance] to assessments to civil penalties, but are there ever times where you -- the civil penalty would be the first enforcement action you took for some issue? A. Not the first one, no. It always has to start at the lowest level, and then if it’s not complied with, whatever the error was, then we would build on the - - the assessment, and then from there, if they still refused to do it after a certain time, then we would go on into the civil penalty aspect of it, and I can’t really quote a lot of that. I don’t remember everything about that. It’s just like you’ve really got to look at the directions behind it. Q. Okay. After a -- so let me -- we talked about major incidents of noncompliance and how those could go to assessments or civil penalties, but let’s go back to major incidents of noncompliance now, and I want to ask you, is there a next level of enforcement action available to you for a violation, a next level higher than a major incident of noncompliance, other than what we’ve already talked about? A. Yes. There’s a -- there’s other avenues when you get to that level, too, I suppose, to the civil penalties. Depending on the violation, it can go as far as shutting in the operator, if there’s just continued noncompliance issues. That’s – that’s one step. I could hire someone to -- go through the motions of hiring somebody to complete the work, and they would be billed for it. That doesn’t happen very often at all. Q. And we’ll talk a lot more about shut-in orders but at this point, generally, what is a shut-in order? What does it require of the operator? A. It would require the operator to abide by the directions of the shut-in order, which means he would need to potentially shut down their operation, shuttering their wells and tanks and everything until whatever was corrected that was outstanding. Q. Okay. And, again, still focusing on that 2007 to 2010 time period, what kind of discretion, if any, did you have as an inspector in deciding what kind of enforcement action to take? A. I had full discretion. 18 Q. And could you give us an example of a time where you might have to make a decision between -- you might have to exercise that discretion between different options? A. Yeah. Sometimes when something is just not completed, not completed right, you can’t communicate with the operator, we can’t get something fixed that needs to be dealt with immediately, then -- or something to secure the tanks, then -- then I have a discretion to halt their operation until they get in compliance. Other issues like a serious leak or something could be a reason to ask them to shut everything in, still followed up by the documentation. (alterations added). Between August 15, 2007 and May 29, 2008, Mr. Fancher inspected the wells at Petro Mex’s site related to the Garfield Lease and issued a total of eleven Notices of Incidents of Noncompliance. Seven of the Notices of Incidents of Noncompliance were for minor violations, including ineffectively sealing sales valves, failing to identify storage tanks by a unique number, a leaking bull plug, insufficient water storage pit and full steel tank, and the failure to notify the Field Office prior to oil sales. Four of the Notices of Incidents of Noncompliance were for major violations, for unsealed sales valves and for an underground leak. On August 15, 2007, Mr. Fancher inspected wells related to the Garfield Lease and issued three Notices of Incidents of Noncompliance, all related to the Federal 15-9 well. Two of the Notices of Incidents of Noncompliance were for minor violations, Notice of Incident of Noncompliance No. EF007056 was for the tank valves “ineffectively sealed to minimum standards,” and Notice of Incident of Noncompliance No. EF007057 was for the failure to clearly identify the storage tank by a unique number. The third Notice of Incident of Noncompliance was for a major violation, Notice of Incident of Noncompliance No. EF007055, which stated: “The sales valves on your tank found to be ineffectively sealed to minimum standards. US GOV BLMI seal No. 0286 was placed on the the [sic] sales valve. You must obtain prior approval to remove this seal. After approval, install your seal to obtain compliance.” (capitalization in original; alteration added). Regarding the Notices of Incidents of Noncompliance issued on August 15, 2007, the Operations Manager of Petro Mex, Mr. Wilson, had the following exchange with plaintiff’s counsel: [Q.] So do you have any recollection of what happened, what Petro Mex did in response to these notices of incidents of noncompliance? A. I am the one that fixed all of these incidents of noncompliance. On the sales valve and the B&W valve, I bought what they call darts that go through the locking mechanism of the valve, so you can put a seal on it, and that way it can’t be tampered with. And on the third one, I had signs made and installed on the production tank. 19 Q. Okay. Do you know if Petro Mex ever signed these violations and returned the notice once the violations were corrected? A. I believe I did. Yes. Q. Okay. Did that always happen when you corrected an incident of noncompliance, a notice of incident of noncompliance? A. No. There could be instances where they were not signed. Q. And were you ever -- maybe “punished” isn’t the right word. Did the field office ever take action against Petro Mex for failing to actually return a signed copy? A. Not to my knowledge. Q. Okay. So if you didn’t sign one of these, how would you usually let Mr. Fancher know that the issue had been corrected? A. I would call him on the phone and tell him that everything had been corrected. Q. Okay. Would he remind you to send in a signed copy or not? A. No. Usually not. Q. Did he ever indicate that it was necessary there would be some kind of assessment or fine if you didn’t actually send a signed copy? A. I don’t remember him ever saying that to me. (alteration added). On October 9, 2007, Mr. Fancher, inspected wells on the Garfield Lease and issued two additional Notices of Incidents of Noncompliance for the Federal 15-9 well – one minor violation and one major violation. Notice of Incident of Noncompliance No. EF08004 was for the minor violation and stated: “Drain valves are ‘appropriate valves’ and shall be ‘effectively sealed’ using the dart system, during the production and sales phases or combination of production and sales phases” by October 21, 2007. Notice of Incident of Noncompliance No. EF08003 was the Notice of Incident of Noncompliance for the major violation and stated: “Sales valves are ‘appropriate valves’ and shall be ‘effectively sealed’ using the dart system, during the production and sales phases or combination of production and sales phases” by October 21, 2007. Regarding the two Notices of Incidents of Noncompliance issued on October 9, 2007, Linn Wilson had the following exchange with plaintiff’s counsel: 20 [Q.] Do you recognize these documents? A. Yes. Q. Okay. Why don’t you tell us what these are. A. It is telling me that the incident of noncompliance is sales valves are appropriate valves and should be effectively sealed, using the dart system during the production and sales phases or combination of production and sales phases by the date indicated. Q. Okay. So let’s back up here. Are these two different notices of incidents of noncompliance than the ones we just looked at [the three Notices of Incidents of Noncompliance issued on August 15, 2007]? A. Yes, they are. Q. When are these dated? A. These are dated 10/9 of 2007. Q. Okay. Are these the same violations that we just looked at in Exhibit 9 [Notices of Incidents of Noncompliance issued on August 15, 2007]? A. They are the -- they are the same violation, just worded differently. Q. Okay. So the sale [sic] valve violation on 10/9/07 was the same sales valve violation from the previous exhibit? A. Yes. ... Q. So is that the same sales valve violation as the violation that was in Joint Exhibit 9 [Notices of Incidents of Noncompliance issued on August 15, 2007]– A. Yes. Q. -- Mr. Wilson? A. Yes. 21 Q. And then what is the violation in the second notice of incidents of noncompliance in this exhibit [Joint Exhibit 10]? That would be trial page 32[8]. A. It is the drain valve. Q. Okay. A. And it says the same thing, that it has to be effectively sealed by the dart system during production. Q. So -- and, again, is that the same violation that was cited in the notice of incidents of noncompliance in the previous exhibit, JX-9? A. Yes. Q. Okay. So those two had not been fixed by this point in time. Is that fair to say? A. That’s fair to say. Yes. Q. Okay. And this is about two months later. Correct? A. Yes. Q. Okay. And are either one of these notices of incidents of noncompliance signed by a BLM representative? A. No. Q. Okay. And did these come from Mr. Fancher as well? A. Yes. Q. Okay. And again on these, you did testify earlier that these violations were eventually fixed. Correct? A. Correct. Q. And, again, do you know if you ever signed the violation and returned it once it was corrected? 8 Each page of the joint trial exhibits was sequentially numbered, so plaintiff’s counsel’s reference to “trial page 32,” was the 32nd page of the trial exhibits, and part of Joint Exhibit 10. 22 A. I feel confident that I did sign these and return them when it was fixed. Q. Okay. Do you have any idea when it was fixed? A. I cannot say with certainty what date. Q. Do you know -- do you remember these violations from -- and I recognize that this is from September of 2007. Do you remember these, Mr. Wilson? A. I remember receiving a violation about the tank valves. Yes. Q. Okay. Did Mr. Fancher ever give you a call about these? A. I don’t recall if he did or not. (alterations and footnote added). The parties have stipulated that “[t]he Garfield Lease produced gas during the months of January through May 2008, until it was shut-in on or around May 29, 2008 following inspection and re-inspection.” (alteration added). The joint stipulated facts stated that “[a]s of April 2008, BLM records indicated that Petro Mex had not submitted any production reports for the Garfield lease since July 2007,” and “[a]s of April 2008, BLM records indicated that Petro Mex had not made any royalty payments on production from the Garfield lease since July 2007.” (alterations added). On April 25, 2008, Mr. Fancher inspected the wells on the Garfield Lease and issued five additional Notices of Incidents of Noncompliance, all of which were delivered to Petro Mex by certified mail. One Notice of Incident of Noncompliance, Notice of Incident of Noncompliance No. EF08016, related to the Government 5 well and was a minor violation for “a leaking bull plug.” The other four of the Notices of Incidents of Noncompliance all related to the Federal 15-9 well. One of the Notices of Incidents of Noncompliance, No. EF08017, was a major violation for “unsealed sales valves.” The other three Notices of Incidents of Noncompliance were for minor violations. Notice of Incident of Noncompliance No. EF08018, was a minor violation for “storage tanks lacking clearly identifiable unique numbers;” Notice of Incident of Noncompliance No. EF08020, was a minor violation for “insufficient water storage pit and full steel tank;” and Notice of Incident of Noncompliance No. EF08021, was a minor violation for the “failure to notify the Field Office prior to oil sales.” The parties further stipulated: “Each Notice of Incidents of Noncompliance[9] had text stating ‘WARNING’ and further stated that ‘[e]ach violation must be corrected within 9 The parties’ joint stipulations and filings are inconsistent in referring to the Notice of Incident of Noncompliance. The court’s review of the BLM documents reveals similar inconsistencies. The court refers to a single notice as a Notice of Incident of Noncompliance and refers to multiple notices as Notices of Incidents of Noncompliance. 23 the prescribed time from receipt of this Notice and reported to the [BLM] office.’” (first alteration added; footnote added; capitalization in original). The Notices of Incidents of Noncompliance listed different dates for compliance, with compliance for all five Notices to be completed by June 2, 2008. On cross-examination, defendant’s counsel asked Mr. Villalobos about the Notices of Incidents of Noncompliance: [Q.] From that same 2007 to 2009 time frame, do you recall correcting some of the violations on incidents of noncompliance? A. I remember, yes. Q. And so you would go -- once you corrected whatever was on the incidents of noncompliance, you would go -- you would tell Linn Wilson that you had fixed the violation, correct? A. That’s correct. That what I do and then I told -- after that, Linn have to do the paperwork or whatever he have to do. That’s his department. Q. Right. And so you don’t know when Mr. Wilson would send that incidents of noncompliance back to BLM, right? A. No. Q. And then when -- did you ever -- so was it Petro Mex’s policy, again during that 2007 to 2009 time frame, to keep a copy of an incidents of noncompliance or, I guess, to make a copy of it for the records? A. I don’t know if they -- Linn [Wilson] or Susan [Wilson] or Trudy [Grubilnick] keep copies. I don’t know that. (alterations added). Regarding Notices of Incidents of Noncompliance, Mr. Villalobos also testified “when it come in to paperwork, I’m not doing any paperwork. I don’t know how to do it.” Similarly, on cross-examination, defendant’s counsel asked Mr. Wilson about Petro Mex’s policies: Q. Did Petro Mex have any policies on recordkeeping? A. No. Q. Did Petro Mex have any policy on how to handle important emails? A. At that time, no. The court, however, leaves quotations unchanged. 24 Q. Did Petro Mex have any policy on what to do following important phone calls? A. No. Not any policy. No. Q. Did Petro Mex have any policy on how to address incidents of noncompliance? A. The only -- it wasn't really a policy. The only thing was as soon as you got one, you needed to get it fixed as soon as possible. Q. Did Petro Mex have a process for tracking whether it had corrected violations from incidents of noncompliance? A. No, not really. It was -- once we got them and we got them completed and we signed them and sent it back, whenever they sent us one, we would have two copies, one for us and one that we had to sign and send back to the BLM. And I would try to put our copy in the well file. In a May 16, 2008 memorandum to the Colorado BLM State Director, Mr. Hartman noted that: Petro-Mex has a history of failing to comply with Orders of the Authorized Officer and Incidents of Non Compliance with resulting assessments being issued. In the past two years this office has issued 31 incidents of non compliance. Petro Mex’s failure to correct three of the INCs has resulted in the assessments of $750. To date, one of the assessments has not been paid and the corresponding INC [Incidents of Noncompliance] has not been corrected. By the end of May we may be forced to proceed to civil penalties for Petro Mex’s failure to correct these non compliance issues. Applicable examples of the past and current non compliance issues include: Failure to notify this office of oil sales per written request Failure to provide tank gauging reports Hydrocarbon accumulation on pits Leaking well head equipment Failure to provide adequate free board on produced water and drilling reserve pits – Multiple incidents and one assessment Inadequate sealing of oil sales tanks - multiple incidents and one assessment (alteration added). The parties’ joint stipulated facts indicate that “[o]n May 27, 2008, Mr. Fancher re- inspected the three wells on the Garfield Lease,” and “Mr. Fancher observed that Petro 25 Mex had not corrected any of the violations from the April 25, 2008 Notices of Incidents of Noncompliance.”(alteration added). At trial, Mr. Fancher testified on the 28th [of May 2008], I talked to a -- the office person there at Petro Mex, her name was Susan [Wilson], that they had a gas leak at the number 5 pad, and there was an underground problem, and that it required immediate attention. She said she would pass on the information to Jesus [Villalobos] or Linn [Wilson]. I mentioned the leak on the wellhead and the INC [Incidents of Noncompliance] that had not been complied with, such as the oil tank sealing. (alterations added). The parties have stipulated: On May 29, 2008, Mr. Fancher issued a new Notice of Incidents of Noncompliance, EF08025, for a “major violation” on the Government 5 well, an underground leak. The notice directed Petro Mex to repair the leak by May 31, 2008. The notice further stated that “[e]ach violation must be corrected within the prescribed time from receipt of this Notice and reported to the [Field] office.” (all alterations in original; capitalization in original). Mr. Fancher explained at trial in his direct examination: On the 29th [of May 2008], I called to see if they had resolved the issue of the leak. She [Susan Wilson] said that Linn [Wilson] told her that they had been informed by someone else and that someone should be repairing it today. Q. Okay. Did you visit the Garfield lease again on May 29th, 2008? A. Yes, we did, and I say ”we,” myself and Carroll Snyder went out on that, and there was no activity being taken on -- on anything. There was no one out there. Q. Who is Carroll Snyder? A. Carroll Snyder was a full performance petroleum engineer technician that has since then retired. Q. Okay. What did you discover on that visit to the lease on the 29th? A. That the -- the gas was still leaking. There was [sic] no other compliance issues corrected. (alterations added). 26 Additionally, the parties have stipulated: Also on May 29, 2008, Mr. Fancher issued EF08025SI, “Notice to Shut Down Operation” (Shut In Order). The Shut In Order stated that Petro Mex had 24 hours from oral notice being provided “on 5/28/2008 at 15:38 hr.” to immediately “shut in all wells on this lease until all leaks are corrected and all compliance issues are resolved.” The “WARNING” section in the Shut In Order stated that “[o]perations are not to be resumed until permitted by the authorized officer.” The Shut In Order stated “when violation is corrected, sign this notice and return to” the Field Office. It also informed Petro Mex of its review and appeal rights. (alteration in original; capitalization in original).10 At the trial, defendant’s counsel asked Mr. Fancher to discuss the meaning of some of the language in Petro Mex’s Shut-In Order: [Q.] Could you please -- under the Remarks section of the shut-in order, could you please read the sentence following, “You are shut in.” A. It says, “We are required to shut in all wells on this lease until all leaks are corrected and all compliance issues are resolved.” Q. I want to ask you about this language, “all compliance issues are resolved.” You did not list the specific compliance issues here, did you? A. No, I did not. Q. Why did you use this language, “all compliance issues?” A. Because I had compliance issues with Petro Mex and so did our surface people and others in BLM. So I wanted to make sure all the INCs [Incidents 10 The “Remarks” section of Shut-In Order stated in full: YOU ARE SHUTIN [sic]. You are required to shut in all well on [sic] this lease until all leaks are corrected and all compliance issues are resolved. This shutin [sic] shall be complied within 24 hours of our verbal notification to you [sic] office personnel “Susan” on 5/29/2008 at 15:38 hr. When necessary for compliance, or where continued operations could result in immediate, substantial, and adverse impacts on public health and safety, the environment [sic], production accountability, or royalty income, the authorized officer may shut down operations. Immediate shut-in action may be taken where continued operations could result in immediate, substantial, and adverse impacts on public health and safety, the environment, production accountability, or royalty income. (capitalization in original; alterations added). 27 of Noncompliance] and letters that were out were addressed and corrected. And there was a lot going on, so. . . Q. Did compliance issues include the five incidents of noncompliance from April 25th, 2008? A. Yes. Q. Was anything else included in all compliance issues? A. There was surface -- the surface inspectors had issues with them, too. There was some letters and documents like that, but I don’t remember specifically what they were. (first alteration added; ellipse in original). In response to the question, “[w]hat did you intend the shut-in order to encompass?” Mr. Fancher answered: “They encompass everything that -- all the production, all the valves, the tanks, the oil, the receipts, everything, getting them fully in compliance and caught up with everything that I, at least, had the authority to check on.” (alteration added). Mr. Fancher also testified at trial that he could have issued a Shut-In Order, absent a leak: [Q.] You said this was the first shut-in order that you had ever issued, right? A. That is correct. Q. How did you feel when you issued this shut-in order? A. Well, I kind of felt kind of let down a little bit. I tried to work with Petro Mex a lot and tried to get them on the right path of doing -- what to do with the reporting and with the site security and everything. I think I bent over backwards trying to get it straightened out. And then there was other issues with the drilling and stuff like that and we worked with them painlessly on that. So when this gas leak took out, the oil came up missing, no run tickets, it was just pretty much, you know, just like -- they just like blew us off basically is the way I felt. So I felt totally within my right and power to shut them in and requesting information, getting them caught up fully to that point anyway. Q. Yesterday, you described the leak on the Government 5 well that led you to go out to the lease on May 27th, 2008. A. Yes. Q. If the Government 5 well had not had that leak, would you have still issued a shut-in order to Petro Mex? 28 A. Yes, yes. I was working on the shut-in order in that area because of the missing oil, the reporting, site security. There was too many violations really just on that one pad to just kind of lie -- just to forget it. You know, they just wasn’t paying attention and I needed to get their attention and I was planning a shut-in order to do that. In his trial testimony, Mr. Fancher had a dialogue with defendant’s counsel to put the decision to issue the Shut-In Order in context for the ongoing issues with Petro Mex. Defendant’s counsel first asked, regarding May 14, 2008: [Q.] Did you visit the lease that day? A. Yes, I did. Q. What did you discover? A. I discovered that there was no compliance from Petro Mex and would return -- and they would not return my calls. So I installed a BLM seal on that valve, on the 15-9 valve from that tank. Q. Okay. When did you next -- well, this was an in-person visit to the lease? Yes, right? A. Yes. Q. Because you just said you installed a seal. When did you next visit the Garfield lease? A. According to these notes, I followed up again on 5/27, and there was no change, except a new leak was called in to us by the public, and this was on the -- the 5 pad or by the number 5 pad. Q. Okay. And let me just stop you there because I want to ask you a little bit more about that before we go on. Did you personally observe that gas leak? A. Yes. When I went out there, I did observe it. Q. And what did you -- how did you -- how did you observe it? For example, using your senses or -- how did you know there was a gas leak? A. I knew there was a gas leak because I could hear it, and you can smell gas because they have an odorizer that they put in it. 29 Q. And had Petro Mex corrected any of the April 25th, 2008, incidents of noncompliance as of your May 27th visit? A. No, they hadn’t. Q. All right. What did you do as a result of the leak? A. Well, then we had to think -- take everything into consideration. I understood the field well enough to know -- Q. And I’m sorry, sir, but I'm just asking specifically for the leak. A. Oh. Q. So did you issue an incident of noncompliance, for example, for the leak? A. I issued a -- a notice of shut-down, a shut-in order. (alteration added). The parties have stipulated that “[i]n addition to the oral notice, a hard copy of the Shut-In Order was delivered in person and by certified mail.” (alteration added). At trial, defendant’s counsel and Mr. Fancher had the following exchange: Q: [h]ow do you then notify an operator of a shut-in order? A. We would immediately call him as soon as we could and try to get some kind of communication to him, his office, or we would make a diligent effort to ensure that he knows about it probably by telephone. And then we would still send a written copy of the form to him. Q. And how do you send those written copies? A. Certified, return receipt. Q. Have you ever issued a shut-in order that was verbal only without any written confirmation? A. No. Q. Would you ever issue a shut-in order that was oral only without written confirmation? A. No. Q. Why not? A. There would be no documentation of it if I didn’t put it on paper and keep -- keep tabs on it. It’s a serious matter, shutting somebody in, so it has to 30 be -- it has to be documented. It has to be in the -- in the well file as well as the office database. Q. What is an operator supposed to do upon receipt of a shut-in order? A. They should immediately, you know, take the action that is prescribed in it. In this case, it would be like fixing the leak and getting all the other compliance issues that needed to be resolved. The Shut-In Order also provided under “Review and Appeal Rights:” A person contesting a violation shall request a State Director review of the Incidents of Noncompliance. This request must be filed within 20 working days of receipt of the Incidents of Noncompliance with the appropriate State Director (see 43 CFR 3165.3). The State Director [sic] review decision may be appealed to the Interior Board of Lands [sic] Appeals, 801 North Quincy Street, Suite 300, Arlington VA 22203 (see 43 CFR 3165.4). Contact the above listed Bureau of Land Management office for further information. (alterations added). Plaintiff’s counsel and Mr. Fancher had the following exchange on cross- examination regarding the resolution of some of the Notices of Incidents of Noncompliance that led to the Shut-In Order: [Q.] [T]hat’s the notice of incident of noncompliance regarding the underground leak on Government 5, right? A. That’s correct. Q. And that was the -- that was the violation that prompted the shut-in order. Is that correct? A. Yes. Q. Okay. Do you know when that was corrected? A. I think like May 30th. Q. And, again, I’ll have you reference -- I’ll have you look back at the interrogatory answers to refresh your memory for [Notice of Incident of Noncompliance No.] 8025. Eight-zero-two-five, I should say. A. [Notice of Incident of Noncompliance No.] 8025 was corrected on July 3rd, 2008. ... 31 Q. [Notice of Incident of Noncompliance No.] 8025, will you look at that again and tell me what the interrogatory says about when that was corrected? A. It says it -- the violation was corrected by June 2rd [sic], 2008. Q. So that was within three or four days of you issuing that notice, correct? A. Yes, that’s correct. Q. What’s your -- really quick, what’s your actual memory of that, of knowing about them fixing that underground leak? A. The only thing I remember would be we traveled out there to verify the leak. We heard about it and we went out and checked it and went back to see if there was any action taken on it. That was the 28th -- the 27th, 28th, and 29th [of May 2008]. I think it was like the 30th, we actually -- there were people out there pouring cement into a couple pipes trying to get it to stop leaking. Q. All right. So you actually observed the crew fixing that leak? A. Yes. Q. At least attempting to fix that leak? A. Yeah, they -- and maybe it was on the 29th [of May 2008] that they fixed it. You know, I don’t -- the exact day, I don’t -- I don’t -- you know, that’s a little bit too far back. (alterations added). Regarding additional Notices of Incidents of Noncompliance issued by the BLM to Petro Mex in April and May of 2008, plaintiff’s counsel and Mr. Fancher had the following exchange at trial: Q. There were six notices of incidents of noncompliance issued between April 25th and May 27th [2008], correct? A. Yes. Q. And from the notes I just took, it looks like three of them were corrected by July 1st, 2008, right? According to what you just told us. A. Or at least closed by -- 32 Q. Well, I’m talking about the ones that were actually corrected. You testified that the bull plug was corrected on June 3rd, 2008. A. Okay. Q. The sales valve was collected on July 1st, 2008 -- corrected, correct? A. Yes. Q. And that’s when you observed Mr. Villalobos actually doing that. A. Okay. Q. Is that correct? A. What’s the number on that? Q. [Notice of Incident of Noncompliance No.] 8017. A. Okay. Oh, yes, I -- it may have been corrected by that date, yes. Q. But then you talked about how you saw Mr. Villalobos do that. A. And is that -- Q. You had that meeting with him. A. And that was the 1st of April -- Q. July 1st. It was July 1st. A. I corrected it then, yeah. I put a seal on it, but he didn’t have the darts for it. Q. And then the underground leak was fixed on June 3rd, correct, [Notice of Incident of Noncompliance No.] 8025? A. [Notice of Incident of Noncompliance No.] 8025? Q. Mm-hmm. A. [Notice of Incident of Noncompliance No. 80] 25 was -- it was corrected June 3rd, 2008. Q. Okay. And then one of them was closed on July 1st, 2008, [Notice of Incident of Noncompliance No.] 8021, correct? 33 A. It was not corrected. It was just closed on July 1st. Q. Well, that’s what I said. It was closed on July 1st, 2008, right? A. Oh, yes, closed. Q. And no assessment was issued? A. No, not at that time, no. Q. And then the other two remaining were both closed on October 9th, 2009, correct? A. August 4th -- that’s. . . Q. Again, you testified that [Notice of Incident of Noncompliance No.] 8018 was closed on October 9th, 2009. That’s the numbered storage tank. A. Yes. Q. And [Notice of Incident of Noncompliance No.] 8020 was closed on October 9th, 2009. That was the full water tank. A. Yes, we closed the INC [Incidents of Noncompliance] that day. Q. Okay. So there were -- out of the six incidents, by the end of July 2008, there were only two that were still outstanding? ... A. Yes. Well, that wasn’t [sic] closed anyway. Q. And that was the numbered storage tank and the water tank, correct? A. Yes[.] (alterations added). The parties stipulated that “[o]n June 16, 2008, Mr. Fancher inspected the Garfield lease. Mr. Fancher observed that the Garfield lease wells were ‘not producing because of line pressure.’” (alteration added). The also parties stipulated that “[o]n July 1, 2008, Mr. Fancher met with Mr. Villalobos at the Garfield lease. Mr. Fancher and Mr. Villalobos ‘talked about the oil and seal on the tank.’ Mr. Fancher found ‘no indication that the well is on.’” (alterations added). Mr. Fancher’s “conversation record” for the July 1, 2008 meeting stated: 34 Carol Snyder and my self [sic] visited Jesus Villolabos [sic]. We talked about the stains at the staging are [sic] and I told him they needed to be dealt with. I recommended he call Christina Stark. We went to the 15-9 well and talked about the oil and seal on the tank. He changed the seal with their seal. The level is still @9.5’. There was no indication that the well is on. I told him he needed to empty the water tank so it does not over flow. He said he would call the water truck out to haul the water off. We discussed the letter Bob [Robert Hartman] sent requesting the drilling reports and targeted the cementing reports. He said that Trudy [Grubilnick] and Linn [Wilson] was expose [sic] to have that together with the late reporting and be sending us a copy. We talked about the bond issue. He is fully aware of the situation there. Jesus was setting up a compressor on the private land location. (alterations added). At trial, Mr. Wilson testified he called Mr. Fancher in July of 2008 to discuss the April and May 2008 Notices of Incidents of Noncompliance. Mr. Wilson and plaintiff’s counsel had the following exchange at trial: [Q.] [D]id you place a phone call to the field office? A. Yes. Q. Will you tell me about that phone call, when you think it was and what you -- who you talked to? A. I called Ed Fancher and told him that all the incidents of noncompliance had been repaired, and would he like to go out and do a reinspection. And he told me, no, not at this time. Q. When did you make that phone call to the best of your recollection? A. It would have been right at the end of July [of 2008]. Q. Okay. Did you write anything down regarding that phone call? Do you have any record of that? A. No, I do not. (alterations added). At trial, plaintiff’s counsel additionally asked Mr. Wilson, the Operations Manager of Petro Mex: “To the best of your knowledge, were all of those -- were all of the issues from the April and May notices of incidents of noncompliance resolved by the end of July?” Mr. Wilson testified: “I believe they was [sic]. Yes.” (alteration added). The joint stipulated facts reflect that “[i]n August 2008, Petro Mex resumed production from the Garfield lease. The Garfield Lease produced gas during the months of August, September, and October of 2008. Production from the Garfield Lease 35 decreased in late October 2008, and ceased completely beginning November 1, 2008.” (alteration added; internal reference omitted). Mr. Villalobos testified at trial regarding resuming production in August 2008, explaining in an exchange with plaintiff’s counsel: Q. The wells produced -- you turned the wells back in August of 2008, right? A. Yes. Q. And to the best of your memory, did those wells produce in August and September of 2008? A. Yes. Q. Did they produce in October of 2008? A. I think they did, yes. Q. You shut the wells back down at the end of October, correct? A. Yes. Q. Why was that? A. I think that’s when they -- they send us the shut-in orders. Q. Well, we talked about the shut-in order was in May of 2008, correct? A. Yes. Q. The written shut-in order? A. Yes. Q. So in October of 2008, why did you shut the wells back in? A. That’s when Mr. Ed [Fancher] called me and he told me that I need to shut the wells in again. Q. Okay. So let’s talk about that. It’s your testimony that you received a call from Mr. Fancher? A. Yes. Q. Okay. And what did Mr. Fancher tell you in that phone call? 36 A. I remember that morning he called me and said I got to shut those wells in, all the wells in. Q. So why did he tell you you needed to shut the wells in? A. Well, he -- I asked him again why they need to shut them in. He say, I don’t know, I got to -- he say, I’m the bad man, I got to give you the bad news, and I got orders to tell you to shut them in. And I ask him again why. I said, well -- I don’t know, he said. You got to shut them in. ... Q. Okay. So what did you do once you got off the phone with Mr. Fancher? A. I got off the phone and I called Linn [Wilson]. I say, I just got a call from Mr. Ed [Fancher], they want us to shut in all the wells in. And I told Ed, why. I keep fighting. I say, why. Q. And did you instruct Mr. Wilson to go shut the wells in? A. And I told -- he say, well, that’s what they want, I guess that’s what we need to do. So I say, well, all right, shut them in. Q. Okay. Did you remember getting -- did you ever get anything in writing about this from Mr. Fancher or the field office? A. I can’t remember. (alterations added). Mr. Fancher, in response to defendant’s counsel’s question: “Did you have a telephone call with Mr. Villalobos in October 2008 in which you told him the lease was still shut in?” testified: “I don’t recall that conversation.” Regarding the shut down in October 2008, Linn Wilson had the following exchange with plaintiff’s counsel at trial: Q. Why did you shut the wells back in in October? A. Because Jesus [Villalobos] called me and told me that he had received a phone call that we had to shut the wells back in, that we was on -- we was still in the shut-in order. And so i [sic] called Brian Gartner with Energy Transfer,[11] and asked him if he could go out and shut the compressor down for me, and he said he 11Energy Transfer’s role was not defined at trial, however, from the testimony it appears Energy Transfer may have purchased gas from Petro Mex and may have paid royalties. Defendant’s counsel and Mr. Villalobos had the following exchange on cross-examination 37 would. And then that was -- I believe that was on a Friday, and he -- then I went back up there on either Monday or Tuesday and took care of all the block valves and the wellheads. Q. Okay. Production was going pretty well in October before that, wasn’t it? A. Yes, it was. Q. Would there have been any other reason to shut down at the end of October? A. No. Q. And we talked about how in August, it looked like you resumed production around the 14th. Correct? A. Correct. Q. Why was that? A. Because I had spoke to Ed Fancher and told him at the end of July that all the incidents of noncompliance had been completed and did he want to do a reinspection. And he said -- told me, no, not at this time. Q. Okay. at trial, with Mr. Villalobos’ answers as follows: [T]he companies trying to buy the gas, they -- we got it -- they give us -- they show us if we want to pay the royalties or they want to pay the royalties. And that -- back then, they was paying the royalties for us, for Petro Mex. Q. Do you recall the name of that company? Could that have been maybe Energy Transfer or -- A. No, that was before the Energy Transfer. I know they used to have the main office in Salt Lake City. I can’t remember the name of the company. Q. And the company -- and whatever the company’s name was, they would make Petro Mex’s royalty payments, but would they also do the production reporting for Petro Mex? A. No. They only take care of the royalty payments. That’s it. Additionally, Joint Exhibit 33 reflected gas volume statements from Energy Transfer from February 2008 to December 2008. 38 A. So my assumption was that we could turn everything back on. Q. Did he tell you you could turn everything back on? A. No, he did not. Q. Did you ask him if you could turn everything back on? A. No, I did not. Q. Okay. So were you concerned about the shut-in order still being in place? A. I was. When I found out about it in October, I was. Q. But when you turned it on in August, when you resumed production in August, were you concerned about the shut-in still being in place? A. No. Q. Why not? A. Because we had completed all the incident [sic] of noncompliance. (alterations added). On cross-examination, defendant’s counsel pressed Mr. Wilson about restarting production in August 2008: [Q.] Whose responsibility was it to sign and date, complete this shut-in notice? A. It could have been either one of us. Could have been myself or Jesus Villalobos. Q. Whose responsibility was it to mail it back to BLM? A. Again, it could have been either one of us. Whoever signed it would have usually take [sic] it and mail it back. Q. Did you sign and return this form? A. No, I did not. Q. Okay. Earlier you testified that when you called Mr. Fancher at the end of July, you did not tell him that Petro Mex was going to resume production. Is that right? 39 A. No, I did not. I asked him if he wanted to reinspect the wells. Q. And let me -- so did -- just to be clear, did you tell Mr. Fancher you were going -- that Petro Mex was going to resume production during that -- A. No. Q. Okay. -- end of July phone call? A. No. ... Q. [C]ould you look at the warning section, please. Do you see that? A. Okay. Q. Can you read the first sentence, please, under, Warning. A. “Operations are not to be resumed until permitted by the authorized officer.” Q. Okay. And Petro Mex resumed production in August 2008. A. Yes. Q. And did -- Petro Mex did so without permission of the authorized officer. Right? A. Correct. Q. Do you recall specifically when in August Petro Mex resumed production? A. I believe it was mid-August, around the 14th, 15th. Q. And then Petro Mex shut down production again near the end of October 2008. Right? A. Correct. (alterations added). Mr. Wilson testified regarding the shutting down production again in October 2008: [A.] Looks like we was in full production up until the 25th of October, and then it dropped off. I believe that’s when we shut the wells back in. 40 Q. Okay. A. I had -- I called a guy to go shut in the -- shut down the compressor, but the wells was still open at that time. Q. Okay. Based on the numbers here, when do you think the compressor was shut down? A. I would say it was shut down on the 24th. (alteration added). Subsequent to the October 2008 shutdown, Mr. Fancher visited Petro Mex in 2009. According to the joint stipulated facts: On March 30, 2009, Mr. Fancher inspected the Garfield lease. Mr. Fancher observed that one well had a health and safety violation, a pump jack present without any guards, but he did not issue a Notice of Incidents of Noncompliance for that violation. Mr. Fancher observed that a field compressor he had observed in June 2008 was “now gone.” Mr. Fancher “found that Petro Mex had sold gas during after [sic] the shut in.” (alteration in original). Mr. Fancher’s notes, which were admitted as a joint exhibit at trial, twice indicated: “We found that Petro Mex had sold gas during after [sic] the shut in. This is on our plate.” (alteration added). On cross-examination regarding Mr. Fancher’s March 30, 2009 inspection of the Garfield Lease, plaintiff’s counsel asked: [Q.] You did say on the first one you note that “We found that Petro Mex had sold gas during and after the shut-in. This is on our plate.” What did you mean by “this is on our plate?” A. This is on our plate meaning this is something new that we had to deal with that it came up. We’d have to investigate it and see when they started and everything and that’s basically all I meant by it. Q. So what happen -- what did you do? Did you do any investigating into that question? A. Well, I did the investigating as far as I could on the OGORs [Oil and Gas Operations Report], the reported MMS website. I looked in Colorado’s website also and seen that they had started and stopped. That’s really about all I did, what I remember. (alterations added). With defendant’s counsel, Mr. Fancher clarified the phrase “this is on our plate” 41 meant that we had to research that and find out why they did that, why they started production without -- without notifying us. Q. And on what date was this? A. This was on March 30th, 2009. Q. Was this the first time that you learned that Petro Mex had produced during the shut-in? A. Yes, I think it is. Q. Did you know in August 2008, at that time, did you have any knowledge that Petro Mex was producing? A. I don’t remember any knowledge of that. I’d have to look and see if I made any notes anywhere. Q. Okay. Do you know whether in September 2008 you had any knowledge that Petro Mex was producing? A. No, no, ma’am. Q. Did you have any knowledge in October 2008 that Petro Mex was producing from the Garfield lease during the shut-in? A. No, ma’am. According to the joint stipulated facts, subsequent to Mr. Fancher’s March 30, 2009 inspection, [o]n April 1, 2009, Robert Hartman sent a letter to Petro Mex stating that BLM’s records showed Petro Mex had “last produced in October 2008,” and removal of the field compressor “eliminates the possibility of production from the wells.” Mr. Hartman stated that BLM had determined that “the lease is not capable of production in paying quantities.” In the April 1, 2009 letter, Mr. Hartman cited 43 C.F.R. § 3107.2-2 and gave Petro Mex 60 days to “restore production in paying quantities.” Mr. Hartman further stated that, “if justification that the lease is capable of production in paying quantities is not submitted within 60 days from receipt of this letter, the lease will automatically terminate.” The letter was delivered to Petro Mex by both regular mail and certified mail. Because the certified copy was returned unclaimed, a third copy was hand delivered to Petro Mex’s office the week of May 18, 2009. 42 (alteration added). At trial, Mr. Hartman, on direct examination explained: This is a letter that’s commonly referred to as a 60-day letter but more appropriately potential lease termination letter. And it’s telling the lessees of a lease that they -- the BLM has reviewed the production and it appears that the wells are no longer capable -- or the lease is no longer capable of production. Q. Okay. A. And we ask -- yes. Q. And I didn’t mean to cut you off there if I did, but how many such 60-day letters have you issued in your career? A. I don’t know, maybe 500. It’s one of our most common letters. It’s the really only way that leases are terminated. They have -- the lessees, per the regulations, are required to be given notification that, hey, this lease is in danger, please respond. Q. Okay. And in your experience, how do operators usually respond? A. One of three ways. They’ll ignore it; or just -- yeah, they can ignore it, which is an option. They’ll return the wells to production with proper notification. Or those are the only real -- really two options. Defendant’s counsel questioned Mr. Hartman about the language in the 60 day letter that stated: “If justification that the lease is capable of production in paying quantities is not submitted within 60 days from receipt of this letter, the lease will automatically terminate,” and asked Mr. Hartman: [Q.] [H]ow could Petro Mex have shown justification that the lease is capable of production in paying quantities? A. Well, I guess a couple ways. They could have put a compressor onsite and produced the wells. Obviously if they were shut in at that time, they would have had to eliminate that hurdle before that. The other option that was suggested by Petro Mex in one of the meetings I guess we’re going to talk about, but that idea of venting the gas to the atmosphere, doing what we would call an absolute open flow testing of the wells, where gas is vented to the atmosphere or measured and then vented to the atmosphere. Q. And does that require special equipment to do the venting test? A. It requires -- yes, special equipment, yes. 43 Q. And then have you ever issued a 60-day letter while an operator was shut in? A. No. Q. And then do you recall when after [sic] you sent this letter if Petro Mex contacted you? A. I don’t remember contacting, but reading through the case file in the last couple days indicated that we were contacted. ... [Q.] Do you recall speaking with Petro Mex on May 5th, 2009? A. I do not remember specifically, no. Q. Okay. What about references to, like, the compressors being stolen and this list of equipment? Was this necessary information for you to know? A. It didn’t seem to be applicable to what our desire was to have the leases paid or to get the leases back on production. No, it did not. Q. Is there any reference in this letter about Petro Mex having any kind of justification for returning the wells to production in paying quantities? A. No. I don’t see any reference. Q. Okay. And then there’s at the very bottom a reference to an MMS fine and royalties, but to your understanding, does BLM have any involvement with the MMS fine or royalties? A. No, we do not. Q. And then there’s also – A. Not that I’m aware of, we don’t have any. Definitely not at the field office level. (alterations added). In response, Mr. Villalobos sent a letter to Mr. Hartman in May 2009, which stated, in part: 44 Pursuant to our conversation on May 5th, 2009,[12] Petro-Mex LLC would be willing to pay off what fines that have been levied against Petro-Mex_@12 ½% of total production ... Petro-Mex disagrees with the M.M.S. fine. The royalties have- been paid. The paper work wasn’t filed on time. $150,000.00 is a little steep for 8 months of reports that wasn’t filed on time. The people in charge of filing paperwork have been replaced. (punctuation in original; footnote added) As stipulated to by the parties: On May 27, 2009, Mr. Villalobos and his friend, John Durham, met with Mr. Hartman, Mr. Fancher, and David Lehmann from the Field Office. Mr. Hartman documented the meeting in a June 16, 2009 letter to Petro Mex that was signed by Catherine Robertson. Mr. Hartman summarized the issues discussed at the May 27, 2009 meeting as including “royalty payments, production reporting, increased bond amounts, past incidents of non-compliance and lease status for the leases operated by Petro-Mex.” As to the status of the lease, the letter stated that Petro Mex’s response “during the meeting is that the lease is capable of production but without compression the wells are not able to produce.” Petro Mex did not have a compressor on the lease from May 2009 to August 2009. In the June 16, 2009 letter, the Field Office directed Petro Mex to provide a “written response to explain the paying status” of the lease within 15 days. The Field Office warned that “failure to provide adequate justification will result in termination of the lease[].”[13] At the May 27, 2009 meeting, Petro Mex and [sic] Field Office discussed alternatives for demonstrating production. Petro Mex offered to perform production testing by flow testing the wells, and either venting the gas to the atmosphere or setting a compressor and selling the gas. As to royalties due on production, which were the basis for the October 22, 2008 Notice of Civil Penalty, the June 16, 2009 letter stated that Petro Mex remained 12 At trial, in response to the question, “so did you actually call Mr. Hartman after receiving this letter?” Mr. Villalobos testified, “I don’t know. I think John [Durham] did. I didn’t call Bob, no.” Mr. Villalobos testified, regarding the 2009 letter, “I told Linn [Wilson] to write it up and I sign it. I don’t know who wrote it, Linn or Susan [Wilson] or Barbara [Sonnier]. I don’t know who did.” (alterations added). 13 The June 16, 2009 letter stated: “Failure to provide adequate justification will result in the termination of the leases,” referring to the Garfield Lease, as well as the Mesa Lease and Esmerelda Lease. As noted above, the Mesa Lease and Esmerelda Lease are not at issue in the above captioned case. 45 delinquent. Mr. Hartman acknowledged Petro Mex’s request to modify its royalty amount “in order to pay off fines,” but explained that the Field Office lacked authority to “modify lease terms such as royalty rates.” Mr. Hartman explained the Field Office would forward Petro Mex’s request to the State Office, “but at this time will not recommend approval.” (first alteration in original; footnote added; internal references omitted). The June 16, 2009 letter to Petro Mex noted: This office requested a bond increase from Petro Mex due to large liability on your leases. Your history of non-compliance with on the ground operations and apparent failure to report timely to the MMS led this office to require this bond increase. Our letter was dated August 25, 2008 and asked for a response from Petro Mex within 30 days of receipt of the letter. You addressed this issue in our May 27 meeting indicating that Petro Mex was unwilling or unable to provide this increase in bond amount. As noted above, your May 20, 2009 letter requested an increase in royalties in order to pay off fines. This office does not have the authority to modify lease terms such as royalty rates. Your failure to keep current with royalty obligations gives us no comfort that you will with future obligations. The failure to respond to requests for well completion information, bond increase requests and lease production data is also troubling. We will forward your request to our state office for their review but at this time will not recommend approval. The June 16, 2009 letter to Petro Mex also stated that [y]our letter [undated letter from Petro Mex that was received by BLM on May 20, 2009] stated that you disagree with the Mineral Management Service fines and royalties had been paid. In our meeting you reiterated that you were current with royalty payments. We have talked to MMS personnel in Denver concerning royalties and fines that are due. It is our understanding that minimum royalties may be current for the two producing leases but the royalties that are due on production are not current. The failure to pay production royalties is the basis for the penalties as outlined in the Notice of Civil Penalty letter dated October 22, 2008. (alterations added). Regarding the June 16, 2009 letter to Petro Mex, the joint stipulated facts also stated: As to the bond, the letter stated that Petro Mex indicated it “was unwilling or unable to provide” the required increase in the amount of its bond to $100,000. BLM issued an “order of the authorized officer” to increase the bond and directed Petro Mex to respond in writing to the August 25, 2008 letter within 20 days. BLM warned that failure to submit the required bond 46 “will” result in “an assessment of $250. . . and lease cancellation.” In the June 16, 2009 letter, BLM issued an “order of the authorized officer” directing that “[a]ll production is to remain shut in” on the Garfield lease “until Petro-Mex satisfies the increased bond request and all fines are paid to [MMS].” BLM warned that “[f]ailure to abide by this order will result in an assessment of $250. . . and civil penalties.” (alterations in original; internal references omitted). The parties further stipulated that “[t]he June 16, 2009 letter informed Petro Mex of its appeal rights,” and “[t]he June 16, 2009 letter was delivered to Petro Mex by certified mail, first class mail, and hand delivery.” Mr. Villalobos testified that Petro Mex did not appeal. Regarding the May 27, 2009 meeting and June 16, 2009 letter, defendant’s counsel asked Mr. Hartman did Petro Mex ever -- when it comes to the paying status, did Petro Mex ever ask permission from you to take any steps related to demonstrating an ability to produce in paying quantities from the Garfield lease? A. Not that I remember. Q. Did the shut-in prevent Petro Mex from flow-testing the wells for purposes of demonstrating ability to produce in paying quantities? A. I think with the request -- I’m looking back, if they had requested it, we probably could have gotten around that shut-in order to actually allow testing, but as far as I know, they did not. Q. So what do you mean by that? So gotten around the shut-in order, so -- A. We could have -- we could have worked -- worked with them with the idea that -- two options. We could have extended the so-called 60-day letter to additional time until things got straightened out on the INCs [Incidents of Noncompliance], the shut-in orders, or we could have worked out the idea of flow-testing versus installing compressors, but that 60 days obviously -- well, it’s not obvious here, but that 60 days is flexible as long as we’re receiving feedback from the operator that they’re wanting to do something. Q. And so when you say it’s flexible and could have extended it, why didn’t you extend the 60-day letter? A. It wasn’t apparent to me that they were actually interested in continuing in responding to any of our information requests. 47 Petro Mex’s Bond The parties have stipulated that [p]rior to May 2008, Petro Mex’s bond requirement was $25,000. In April 2008, the Field Office’s field manager, Catherine Robertson, sent a memorandum to the Colorado BLM State Director requesting an increased bond from $25,000 to $100,000 for Petro Mex. Ms. Robertson stated that the reasons for the requested increase in bond coverage included: (1) Petro Mex’s “history of failing to comply” with orders and Notices of Incidents of Noncompliance; and (2) the fact that Petro Mex was delinquent in its production reporting. Ms. Robertson stated that the increased bond was “required to reduce the liability” to the Government in the event the wells were plugged and abandoned because the estimated cost per well was $20,000.[14] (alteration and footnote added; internal references omitted). At trial, Mr. Hartman testified that he drafted the April 2008 memorandum for Ms. Robertson’s signature. Regarding the April 2008 memorandum, defendant’s counsel and Mr. Hartman had the following exchange: [Q.] And then can you just generally explain what this memorandum is? A. It’s a recommendation to the state director from the field office manager saying that an operator has particular issues and that we believe that a bond 14The joint stipulated facts note that in Ms. Robertson’s April 2008 memorandum to the Colorado BLM State Director requesting an increased bond for Petro Mex, “Petro Mex’s wells were then in a ‘shut in or unapproved temporarily abandoned status.’ However, none of Petro Mex’s wells were then in a ‘shut in or unapproved temporarily abandoned status.’” Mr. Hartman had the following exchange with plaintiff’s counsel regarding the Ms. Robertson’s phrasing that “none of Petro Mex’s wells were then in a ‘shut in or unapproved temporarily abandoned status:’” [Q]. Is it possible that that was an incorrect statement that the wells were currently in a shut-in or an unapproved temporarily abandoned status. A. Yes. Q. So it’s certainly possible that in sending this memorandum to the state director asking for the increased bond, you provided incorrect information. A. With respect to the well status, maybe, yes. (alteration added). 48 -- an increase to their bond should be required. And it lists our criteria of why we believe it should be increased. Q. Okay. A. Yes. Q. And then the first indent refers to -- and I think ties back to the spreadsheet we just looked at, but refers to seven wells and all of them are currently in a shut-in or unapproved temporarily abandoned status. And even if that were not true, would you have still made a recommendation to increase the bond? A. Whether they were shut in or not? Q. Yes. A. Being the criteria? Yes. Nonproduction is a concern. It’s one of the criteria for a bond increase. Yes. Q. And then there’s a reference to the middle paragraph, which is the indented paragraph, refers to a history of failing to comply with orders of the authorized officer and incidents of noncompliance resulting in assessments being issued. Why was that a reason for asking for an increase in bond coverage? A. It’s one of the -- on the -- let’s see, in the memo, the memo from Washington. It’s one of the criteria that can be used to show a bond increase is needed. Q. And then can you explain why you have that third indented paragraph and what the purpose of that was? A. This is based on -- I believe it was based on conversations or emails from MMS between me and one of the -- some MMS representative that there were failures to pay royalty and failures to report production. (alteration added). The parties have stipulated: On May 15, 2008, the Colorado BLM State Director approved the bond increase request and required Petro Mex to obtain a bond of $100,000. The State Director gave Petro Mex 60 days from receipt of her letter to comply. The State Director’s decision was delivered to Petro Mex by certified mail. On August 25, 2008, Ms. Robertson notified Petro Mex that BLM had failed to receive any response to the State Director’s order to increase its bond. Ms. Robertson directed Petro Mex to provide the requested additional bond 49 amount within 30 days of receipt of her letter, and stated, “[t]his is an order of the authorized officer.” Ms. Robertson’s letter was delivered to Petro Mex by certified mail. (internal reference omitted). The August 25, 2008 letter from Ms. Robertson stated, in part: Reference is to the attached letter from the Bureau of Land Management- Colorado State Office that requested you provide an increase in bonding amount for your oil and gas operations within Colorado. The letter requested a response by 60 days of receipt of the letter. To date no response has been received. As the May 15th letter indicates, this office has concerns on the amount of liability that exists on Petro Mex Resources operated properties. Your history of non compliance with on the ground operations and the apparent failure to report timely to the Minerals Management Service led this office to request this bond increase. Please provide the requested additional bond amount as requested in the May 15, 2008 within 30 days of receipt of this letter. This is an order of the authorized officer. If you fail to submit the required reports in the time specified, you will be liable for an assessment of $250.00 under 43 CFR 3163.1(a)(2) and possible lease cancellation. Regarding the increased bond, Mr. Villalobos testified in response to plaintiff’s counsel’s question, [w]hat about the bond? That hadn’t been posted yet, right [by October 2008], the increased bond? A. No. Q. How come you hadn’t posted the increased bond yet? A. Because I was still fighting that. I keep arguing why they want that bond. Q. Okay. Did you have revenue sufficient to post an increased bond yet? A. I can’t remember, but I did have the money to -- Q. Okay. A. -- take care of the bond.[15] 15The parties have stipulated that on January 12, 2010, “Petro Mex obtained the required additional bond, which brought its total bond amount to $100,000.” 50 (alterations and footnote added). Civil Penalty The parties have jointly stipulated that [o]n October 22, 2008, DOI’s Minerals Management Service (MMS) issued a Notice of Civil Penalty to Petro Mex for “knowing/willful failure to pay royalties and failure to comply with reporting requirements.” As a basis for the Civil Penalty, the MMS found that Petro Mex had failed to pay royalties on gas produced and sold on two leases, including the Garfield lease, for sales months August 2007 through May 2008. As a basis for the Civil Penalty, the MMS found that Petro Mex had failed to submit required form MMS 2014, Report of Sales and Royalty Remittance, for the lease during that same time period, August 2007 through May 2008. The Civil Penalty that was assessed was three times the estimated royalty owed for the delinquent periods, or $149,131.[16] This amount did not include the royalties then due or interest. The invoice sent with the Notice of Civil Penalty indicated the Civil Penalty was due by November 26, 2008. (alteration added; internal references omitted). The October 22, 2008 Notice also indicated PM [Petro Mex] has also failed to submit forms MMS-2014. These reports must be submitted monthly to MMS as required by 30 C.F.R. § 210.10. PM is not being assessed penalties at this time for its failure to submit these reports. However, penalties of as much as $500 per day per violation may be assessed should MMS not receive the reports for the two leases and sales months cited above within 20 days of receipt of this Notice. Such penalties, provided for in 30 C.F.R. § 241.53, may be escalated to $5000 should the violations continue beyond 40 days of receipt. (alteration added). Regarding royalty payments, on cross-examination with defendant’s counsel, Mr. Villalobos had the following exchange: 16 The October 22, 2008 Notice explained that [w]hile MMS has the authority to assess $ 10,000 a day for each of these violation days. [sic] we are limiting that assessment to $100 per violation per day. However, that amount would be $247,500. Accordingly, MMS is limiting this penalty to three times the estimated royalty owed for the delinquent periods, or $149,131. The penalty will continue to accrue at the rate of $100.00. (alterations added; emphasis in original; internal reference omitted). 51 [Q.] [W]e’re in 2007 through 2009. Production was not reported during the period of time Petro Mex did not have a bookkeeper, right? A. In 2007? Q. So when Petro Mex did not have a bookkeeper, Petro Mex was not reporting production, correct? A. I believe that was 2008. Part of 2008, if I remember right. (alteration added). The BLM’s Decision to Terminate the Garfield Lease After the October 22, 2008 Notice of Civil Penalty to Petro Mex, on July 21, 2009, Mr. Hartman sent a memorandum to the State Director indicating that Petro Mex was notified on April 1, 2009 “of the potential termination of the lease due to lack of paying production.” The parties have stipulated: “Mr. Hartman went on to state that, ‘to date no verbal or written intent to reestablish production on the lease has been received.’ Mr. Hartman then stated that ‘it is recommended the lease terminate due to lack of production.’” At trial, plaintiff’s counsel specifically asked Mr. Hartman about the line: “To date, no verbal or written intent to reestablish production on the lease has been received,” and asked him: [Q.] Hadn’t they [Petro Mex] indicated a willingness to reestablish production on the lease if you’d work with them? A. Not in my mind. They were talking about venting. It was about their only option that they gave me. Q. Do you think this memo gives the impression that Petro Mex wasn’t even talking to you guys? A. That’s fair. Q. It doesn’t really represent all the communications and the things that they had said, does it? A. No, it doesn’t. Q. Missing a lot of context. A. That’s correct. (alterations added). 52 Petro Mex responded to Mr. Hartman on August 6, 2009, and as stipulated to by the parties: Petro Mex stated that at the May 27, 2009 meeting “production testing was discussed. We stated that we could flow test the wells and vent the gas or set a new compressor. To go to sales both plans were not acceptable.” Petro Mex then stated that, “at this time Petro Mex can’t figure out a way to test [the wells].” Petro Mex stated it was “investigating the MMS payment,” and stated that “if any royalties have not been paid, they will be.” Petro Mex stated that it was “currently working on the increase of the bond amount.” Petro Mex confirmed “[t]he wells are still shut-in.” (alterations in original). Mr. Hartman testified on direct examination with defendant’s counsel: [A.] My reaction [to Petro Mex’s response] was that there was -- and, then, they -- at the bottom of the letter, they talk about -- well, we had discussed flow testing and installation of compressor, and they made a statement that -- that I guess that the BLM didn’t think that that was acceptable, and Petro Mex couldn’t figure out a way to test them. And my reaction is I don’t think it changed anything in regards to what -- where BLM was headed with recommending the termination of the leases. Q. Well, why not? Was it -- why not? Why didn’t it change anything? A. There was really no plan here other than they said they didn’t know what to do. That’s what I got out of this. ... [Q.] was it your overall impression that this -- that this just wasn’t a solution or an adequate response to the June 16th letter even? A. I don’t think it was a valid response. What we were after -- what we were after throughout the discussions and the letters was continuous production. Q. Okay, so -- A. And I didn’t think this was an acceptable response. In response to defendant’s counsel’s question, Mr. Hartman further testified: Q. And so this letter, you at least received it August 6th, 2009, and you had earlier made the recommendation to terminate the lease for nonproduction on -- I believe that was August -- don’t let me get my dates wrong -- on July 21st, 2009, but after receiving this letter via fax, did you consider taking back your recommendation for the -- the recommendation to terminate? 53 A. No, I did not. And I just -- and I didn’t see any viable solution that they were proposing. They weren’t really voluntarily -- they weren’t proposing anything that was going to fix it other than actual production. And I didn’t even see that. Q. Mm-hmm. Was there any further correspondence with Petro Mex after this letter was faxed to you regarding the showing [sic] production of paying quantities? A. I don’t believe so. Q. And so did the [BLM’s Colorado] state office eventually accept your recommendation to terminate the lease? A. I believe so. I believe the leases were terminated -- or attempted to be. (alterations added). The joint stipulated facts stated that [i]n an August 26, 2009 decision, BLM’s Colorado State Office terminated the Garfield Lease. As grounds for the termination, the State Office explained that “the Grand Junction Field Office has determined that this lease was no longer capable of producing oil and gas in paying quantities after October 1, 2008.” The State Office went on to state that “as no evidence of new production has been received the lease terminated the same date.” (alteration added) After the BLM’s August 26, 2009 decision, Petro Mex appealed the State Director’s termination decision to the Interior Board of Land Appeals on September 18, 2009. On September 27, 2010, the Interior Board of Land Appeals issued a decision, reversing the decision to terminate the Garfield Lease. The Interior Board of Land Appeals noted that Petro Mex repeatedly informed GJFO [Grand Junction Field Office] that it would restore production from these leases if the May 2008 shut-in orders were lifted, but GJFO refused to lift those orders. Thus, the issue here presented is what effect, if any, those shut-in orders have on Petro Mex's rights and obligation, under and pursuant to the MLA’s [Mineral Leasing Act of 1920] third exception to lease termination. (alterations added).17 The Interior Board of Land Appeals held 17The Interior Board of Land Appeals reference to the third exception comes from 43 C.F.R. § 3107.2-2, which states: 54 we reverse BLM’s decisions terminating these leases. Petro Mex challenges the decisions on appeal as violative of its rights under the MLA’s exceptions to lease termination. It claims GJFO erroneously determined that the wells on these leases were not capable of producing in paying quantities and compounded its error by failing to afford Petro Mex an opportunity to be heard before an Administrative Law Judge on that issue. Petro Mex also contends it was precluded by GJFO’s shut-in orders from restoring production under the MLA’s third exception. Petro Mex raises additional claims under the MLA’s other exceptions to automatic lease termination, but in light of our resolution of this case, we need not address them here. Petro Mex contends GJFO erred in determining that these leases (and their wells) were incapable of producing gas in paying quantities. BLM responds by asserting that Petro Mex failed to provide “objective evidence that the wells could produce gas in paying quantities” and failed to request State Director Review of the June 2009 Order. It is uncontroverted that wells on the leases at issue were producing natural gas in paying quantities when they were again shut-in to comply with the GJFO orders in early October. The only stated basis for GJFO determining these leases were not capable of producing gas in paying quantities under 43 C.F.R. § 3107.2-2 was that Petro Mex lacked field compressors necessary to deliver that gas to purchasers. Although the parties disagree on whether these wells can produce without compression, it is undisputed that if GJFO’s shut-in orders were lifted, Petro Mex could install field compressors and return them to producing status shortly thereafter. There is no record evidence that the wells at issue were not “capable of producing oil or gas in paying quantities” under the MLA’s third exception, only that their production could not be sold without compression. The legislative history makes clear that “actual production” is not necessary for this exception to apply and that it is sufficient if a well has an “established physical capability . . . to produce oil or gas in paying quantifies.” [sic] American Resources Management Corp., 40 IBLA [195] 200 [(1979)]; see discussion, supra. The adequacy of or necessity for surface facilities is A lease which is in its extended term because of production in paying quantities shall not terminate upon cessation of production if, within 60 days thereafter, reworking or drilling operations on the leasehold are commenced and are thereafter conducted with reasonable diligence during the period of nonproduction. The 60-day period commences upon receipt of notification from the authorized officer that the lease is not capable of production in paying quantities 43 C.F.R. § 3107.2-2 (2022). 55 largely (if not totally) irrelevant in determining whether a well is capable of producing oil or gas in paying quantifies. [sic] See 40 IBLA at 201. ... We therefore conclude that GJFO erred in determining that these leases (and their wells) were not capable of producing gas in paying quantities under 43 C.F.R. § 3107.2-2 because they currently lack field compressors and an ability to compress the gas produced for transport by pipeline. To the extent those determinations were affirmed by BLM’s decision, they are reversed and that decision is modified. See Coronado Oil. Co., 164 IBLA [309,] 326 [(2005), aff’d, No. 05-CO-llJ (D. Wyo. Aug. 23, 2006), appeal dismissed, No. 06-8083 (10th Cir. Sept. 14, 2007)]. (internal citations omitted; footnote omitted; alterations added). The Interior Board of Land Appeals also indicated: Petro Mex repeatedly represented that it would and could restore production if the May 2008 shut-in orders were lifted; GJFO refused to lift its orders, which were still in place when BLM terminated these leases on August 26, 2009. Although they state that all wells would remain shut-in until “all compliance issues are resolved,” we interpret this language in the context of the facts presented as referring to the violations identified by GJFO in its NOICs [Notices of Incidents of Noncompliance] to Petro Mex. ... GJFO erroneously refused to lift and required continuing compliance with its May 2008 shut-in orders. The record shows Petro Mex could restore its wells to producing status if those orders were lifted. Until GJFO lifts those orders and gives notice to Petro Mex under 43 C.F.R. § 3107.2-3, BLM cannot terminate these leases for nonproduction. If it intends to pursue lease termination under 30 U.S.C. § 226(i), BLM must allow Petro Mex a reasonable time in which to place its wells in a producing status after such notice is given. Cf., Coronado Oil Co., 164 IBLA at 326. Simply stated, there can be no termination of these leases by operation of law under the circumstances of this case. (internal citations omitted; alteration added). In an October 27, 2010 letter, Mr. Fancher lifted the May 29, 2008 Shut-In Order. The parties have stipulated that “Petro Mex resumed production in December 2010, and the Garfield Lease thereafter produced gas,” and “[o]n March 1, 2011, BLM’s State Director rescinded the recommendation to terminate the lease and return it to non- terminable status.” (alteration added). Mr. Fancher, in a dialogue with defendant’s counsel at trial, indicated: 56 This is a letter referring to the shut-in order. I wrote it and it was lifting the shut-in order at that time. I wrote then that in light of the recent IBLA [Interior Board of Land Appeals] decision, and I quoted the decision, that our most recent meeting -- or in our most recent meeting, we discussed the outstanding compliance issues. I have lifted -- enclosed a notice of shutdown order of those two items. Q. Okay. Previously, we looked at the language in the shut-in order regarding the necessity of fixing all compliance issues. Do you recall that discussion? A. Yes. Q. Okay. Had all compliance issues been corrected at the time you lifted the shut-in order? A. No, no, they had not. Q. Given that not everything had been corrected, why did you lift the shut- in order? A. We felt that the two years had been gone by. In hindsight, I should have insisted it remain until they did get everything corrected and did get all the accountability issues corrected, but I chose to go ahead and let them, in good faith, to start operating again. ... Q. What part, if any, did the IBLA [Interior Board of Land Appeals] decision play in your decision to lift the shut-in? A. They remanded the decision back to the field office for nonproduction or whatever. I don’t remember specifically what it stated. (alterations added). In response to plaintiff’s counsel question, “what happened after the decision of the Interior Board of Land Appeals?” Mr. Wilson testified “we got notice that we could turn the wells back on, and we went and set a compressor, and we started production again.” Procedural History Thereafter, Petro Mex filed its complaint in this court. As noted above, the case was originally assigned to Judge Firestone, subsequently reassigned to Judge Hodges, and ultimately reassigned to the undersigned. Plaintiff alleged in its complaint: 57 In granting the Leases, and pursuant to the provisions thereof, the United States promised that the leaseholders, including Petro Mex, that they would have the right to explore for, produce and sell oil and gas from the defined parcels. Petro Mex relied upon such promises and obligations. In granting the Leases, the United States agreed to comply with the terms of the Leases and all applicable rules and regulations and to allow Petro Mex to explore for, produce and sell oil and gas from the defined parcels provided that they were not in material breach of the Lease and all applicable rules and regulations, and to follow all applicable rules and regulations in managing the Leases and Petro Mex’s performance under the Leases. In its complaint, plaintiff contends: The United States breached the Leases and its agreement with Petro Mex by ordering Petro Mex to cease production on the Leases in October of 2008 when it had no valid contractual, statutory or regulatory grounds to do so, and by refusing to allow production to resume once Petro Mex had adequately demonstrated that there were no more remaining violations on the Leases that constituted “immediate, substantial and adverse impacts on public health and safety [or] the environment.” The United States breached the Leases and its agreement with Petro Mex by attempting to terminate the Leases on or about August 26, 2009 when it had no valid contractual, statutory or regulatory grounds to do so. As a result of the breaches of the Leases by the United States, Petro Mex has suffered damages, including the loss of the full potential value of the Leases (including loss of profits), loss of reasonable expectancy and reliance damages including the expenses incurred in reliance upon the right to produce and sell oil and gas from the Leases. (alteration in original). For damages, plaintiff alleges: As a result of the breaches of the Leases by the United States, Petro Mex has suffered damages, including the loss of the full potential value of the Leases (including loss of profits), loss of reasonable expectancy and reliance damages including the expenses incurred in reliance upon the right to produce and sell oil and gas from the Leases. WHEREFORE, Petro Mex request [sic] that a judgment be entered against the United States for the breach of the Leases awarding damages for the loss of the full potential value of the Leases (including loss of profits), loss of reasonable expectancy and reliance damages including the expenses incurred in reliance upon the right to produce and sell oil and gas from the Leases all in an amount exceeding five million dollars ($5,000,000.00) exclusive of interest, costs and attorney fees and such other and further relief as the Court deems just. Petro Mex also seeks an award of attorney fees along with interest, costs and expenses of litigation. 58 (capitalization in original; alteration added). In response to the complaint, defendant filed a motion to dismiss for lack of jurisdiction, alleging that the facts giving rise to the alleged breaches occurred more than six years before the filing of the complaint and, thus, the case was time-barred under the statute of limitations set forth in 28 U.S.C. § 2501 (2012). Judge Firestone denied the motion to dismiss on August 10, 2015, as discussed more fully below. See Petro Mex, LLC v. United States, 122 Fed. Cl. 536, 540-41 (2015). After the motion to dismiss was denied, Judge Firestone gave plaintiff the option to file an amended complaint, however, on October 23, 2015, plaintiff file a notice indicating the plaintiff would not file an amended complaint. Subsequently, the parties engaged in discovery. Once discovery was complete, the case was reassigned to Judge Hodges, and the parties filed cross-motions for summary judgment. Defendant argued that a prior material breach committed by Petro Mex, specifically the failure to pay royalties, provided the justification for the government’s alleged breach of attempting to terminate the lease in August 2009. Judge Hodges, in a brief, unpublished opinion, determined that Defendant has not provided sufficient evidence or argument to show that it is entitled to judgment as a matter of law on this issue. Its assertion that the failure to pay royalties for a period of approximately nine months does not establish a relationship with the alleged breach of termination for non- production. In addition, the materiality of such an alleged breach is not clear from the facts presented. Plaintiff’s cross-motion for summary judgment argued that issue of whether the government breached the lease is precluded by the Interior Board of Land Appeals’ decision, but Judge Hodges determined: While decisions from the Interior Department Board can have preclusive effects in this court, whether the Government committed a material breach of contract was not fully litigated by the parties. The Board’s decision was based on a narrow set of issues that did not ultimately decide whether a breach of contract had occurred. In fact, the focus there was whether the termination for non-production was proper, not whether either party breached the contract, resulting in damages. The Board did not need to determine whether the Government breached the lease to decide that the termination was improper based on bureaucratic guidelines. The issues presented here are not precluded by prior litigation; genuine issues of material fact remain, and summary judgment based on issue preclusion must therefore be denied. (emphasis in original). 59 After Judge Hodges denied the cross-motions for summary judgment, the parties attempted to engage in mediation to resolve the case. After the mediation was unsuccessful, on September 11, 2020, the above captioned case was reassigned to the undersigned. After a hearing with the parties, defendant filed a motion for leave to amend its answer to “assert a new claim of offset pursuant to 31 U.S.C. § 3728(a), and to re- open fact discovery for the limited purpose of updating gas production data from October 2016, through the present.” The court granted the defendant’s motion for leave to amend the answer, and on December 11, 2020, defendant filed an amended answer to plaintiff’s complaint which included a claim for offset, which alleges that, “as of September 14, 2020, Petro Mex owes $330,205.58 to the United States for unpaid royalties, civil penalties, interest, administrative fees, and Treasury collection fees.” On January 21, 2021, plaintiff filed a response to the amended answer and claim for offset. The parties subsequently undertook further discovery on the updated gas production data and prepared for, and proceeded to, [Text truncated at 120,000 characters. The full text is on the page linked above.] --- Source: Frix Law Library, https://www.frixlaw.com/law-library/cases/9372296. Public record. Not legal advice.